Ian Cooper of Smith & Williamson reports on research carried out by the firm in Bristol.
Optimism among law firms is at its highest level since 2007 despite an increasingly competitive business environment and major tax changes ahead, according to new research by the Bristol office of accountancy and investment management group, Smith & Williamson.
A survey of 102 of the UK’s top 250 law firms by Smith & Williamson has revealed that eight in ten firms are confident about the year ahead, compared to just six in ten last year. Firms with 25 partners or less appear the most upbeat, according to the research.
“Signs of renewed growth in Bristol and the wider South West economy as well as the UK generally look to be the primary factors behind these results, fuelling hopes that a more solid recovery is on the way,” said Partner Ian Cooper, who heads the professional services practice at the Bristol office of Smith & Williamson.
“However, despite their optimism, the environment has become more competitive in the last 12 months with almost nine in every 10 respondents expecting to see greater competition as a result of the Legal Services Act. Pressure on fees was cited as the greatest, ongoing challenge.”;
The other major challenge is the significant change to the tax rules governing the way partners of law firms and other partnerships are taxed. The new rules, which come into effect on 6 April 2014, could potentially have significant cost implications for both the partners and the firm.
Ian Cooper, whose team advises professional service firms in Bristol and across the South West, explained: “We expect that a significant number of partnerships will be affected by the tax changes, including those that have fixed equity partners, a service company or a corporate member. Although the revised Finance Act 2014 legislation has yet to be published, firms must urgently consider their options and work out a plan so it is implemented by 6 April 2014.”;
He added: “All partnerships need to review their position without delay as the penalties for getting it wrong could be significant.”
According to Smith & Williamson’s research, law firms are adopting a range of strategies to cope with the pressures. Cost control, recruitment of lateral hires and business development through enhanced IT were seen to offer the three greatest opportunities to enhance profits in the coming year and are important to firms of all sizes.
One-third saw merger with another firm as a route to improving their profitability.
Many firms (39%) have set up a new service line in the last year, while 24 per cent expect to do so in the next 12 months. This suggests a focus on cross-selling services to existing clients and an increasing level of diversification.
Other measures taken by respondent firms in the past year in response to the business climate included sub-letting office space (18 per cent), de-equitising partners (15 per cent), opening a new UK office (14 per cent), opening an overseas office (12 per cent) and centralising functions (11 per cent).
To download a copy of Smith & Williamson’s research of law firms, please visit:
Alternatively, you can obtain a copy of the report from Ian Cooper, head of professional services practice at Smith & Williamson in Bristol, on 0117 376 2000.